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Friday, November 22, 2013

A hint as to what a eurozone grand bargain could look like?

German coalition talks are dragging on, but we may have got a hint as to what a grand bargain between the eurozone north and south might look like, with German Chancellor Angela Merkel again appearing to open up for an EU Treaty change.

She told a Süddeutsche Zeitung leadership conference,
"Germany is ready to develop the treaties still further. At the very least we have to be ready to improve the euro protocol of the Lisbon Treaty – which only applies to euro states – to allow an institutional co-operation via the so-called community method and not to only be active at intergovernmental level."
She proposed a "new co-operation" between the European Commission and member states, with the policy recommendations being the result of negotiations.

She added,
"In this way we create a sense of ownership, a sense of responsibility is created among member states to implement necessary change. That's what I understand by economic co-ordination."
As we've argued before, it's easy to get sustained whiplash injuries from tracking the German position on EU treaty change, but this (again) sounds like 'reform contracts' or 'competitiveness pacts' to us - which we have long argued would come back on the agenda - with the European Commission acting as the 'structural reform police'.

Meanwhile, in an interview with Les Echos and other European papers, Eurogroup Chairman Jeroen Dijsselbloem also had some interesting things to say: 
"If a country is not persuaded that it’s in its own interest to reform and modernise, it cannot be motivated from outside. It doesn’t seem wise to me to propose a ‘reward’ in return for a reform. Instead, I think one should link the concession of additional time to correct budget deficits to stricter conditions in terms of reform. I give you more time if you speed [reforms] up. The European Commission may, if a country fails to do so, demand more on budget [adjustment]."
A lot to play for...


Average Englishman said...

It still boils down to 'do what your told or else.....' but I'm sure all those unemployed young people in Spain, Portugal, Italy, Greece, etc., etc., are going to be really impressed and grateful.

Rollo said...

A lot to play for: pity it is not a game. The divergence between Germany and the Southern nations is increasing; the position is getting steadily worse. Yet we still pretend that there is a solution. Well, there are two possible solutions: Germany colonises and governs the whole of the Eurozone; or all the floundering countries leave the Eurozone (unless Germany leaves it first. All the rest is just fiddling while Rome sinks.

Rik said...

Interesting what is happening in the coalitionnegs in Germany.

Looks like Merky is planning a 'Rutte'.
She simply looks to repeat the same mistakes Rutte made in his negotiations:
-go for a 50/50 obo of standpoints with too less realism in it. Basically if I say 0 and you say 100, 50 is a fair result but if you say 1000, 500 is. And large parts of the public feel it that way.
-she moves away much too easily from the 'brandvalues' of her party. People might accept a compromise but they want to see a good fight to keep them. No first day technical horsetrading;
-simply gives too much the impression to do everything to stay in power;
-promises and/or cuts that will end up on the taxpayer's desk. Like Rutte with his healthcare.
These new nice policies will cost a lot of money clear that the taxpayer will have to food this bill.

As Berty Einstein said doing the same thing and expect a different outcome is madness.

Probably if the negotiations go as the German media indicate she would most likely be better of with new elections. The worst thing that can happen is a lower CDU percentage (seen the polls not very likely and seen the fact that SPD looks to be overstretching as well). Which means an SPD/CDU cabinet (same as now).

The upside however is a clear majority. Reasonable chance for that.
Or FDP and/or AfD getting over the 5%, which gives her an alternative.
Of course she needs optically a good reason for that but an overasking SPD looks a very credible one.

It doesnot however fit in with her personality. Not very strategical savvy and riskavoiding.

Anyway it could be waiting for the blow for the CDU if they mess this one up in the next election (Merky gone, no proper successor, and messed things up). Christian parties looks even much more outdated than the Tories in the UK (or Labour as well btw). Hard to see how any 'going for power' party can rejuverate as long as it has the label Christian stuck on to it. Simply look the ideal candidate for death by a 1000 cuts. Party seems in no way prepared for the future. People vote for Merkel as she is the by far most credible cangdidate (or the rest is utter rubbish, probably the latter).

Do not believe FDP will return btw. They have in potential good chances. But so they had the last 4-5 years.
The problem is they are not able in anyway to make something of the huge potential they have.
And as I see it now the party is still a policy disaster and the leadership is as dysfunctional as it has been the last say decade. No apparatus in place to execute a successful strategy not even able to come up with a credible one voice strategy. No go.

Rik said...

The issue is that nobody really WANTS a treaty change. Simply there are a lot of risk on that way.

However at the same time they simply NEED a treaty change to make things work.

It is this friction that we see here. In real life, reality however always wins at the end.
The only questions are:
- when will they find out;
- when will they publicly acknowledge this; and
- will they first try another 'kick the can' before acknowledging that (and mess things up even more)?


Is this the same Merkel who is supposed to be cooperating with Cameron to allow powers to be handed back to member states?